Trimming a Caterpillar Position: A Money Manager's Process (CAT)

Roger Nusbaum submits: I do what I can on this site to share my process for managing money. I don't dwell too much on naming names as I do not want this to be thought of as a stock touting site. Like most investment managers, I make good decisions and bad ones. Most individuals managing their own portfolios will also have mixed results with their decisions.

On May 23 I wrote a post about having sold half of my exposure (for clients) in an unnamed industrial stock. The stock in question was Caterpillar (NYSE:CAT). This is a name I have owned for clients since 2003. I own the stock because as an industrial stock the cap size is not huge, it is selling a lot equipment to anyplace in the world that is modernizing its infrastructure, the valuations are good and I have felt that it could outperform its sector.

In the time I have been involved with the name, none of the above attributes have changed much nor are they likely to change much in the near future. I executed the sale after hours on the 23rd at an average price of $73.70. Cat had an intraday high of $82.03 on May 10 and yesterday it closed at $66.89.

A big contributing factor to my decision to cut back was that at $73 and change the stock was up 28% for the year. Another concern was that I think the economic cycle is much closer to the end than the beginning and even if Caterpillar can do well in a recession, fundamentally, I would expect the industrial sector, price-wise, to languish before a recession (top down thinking).

So the next question might be why keep any, and there are two important reasons why. The first is that I could be wrong, Kudlow might have it right and the next recession might be nowhere in sight and a big industrial stock like this one might double in the next six months. Also I believe in maintaining a diversified portfolio. I would never want zero exposure to a sector of the market (although most clients own several other industrial names).

This general process stands up over time (for me anyway) and I think can be applied in the future.

We only use your contact details to reply to your request for more information.We do not sell the personal contact data you submit to anyone else.

Thank you for your interest in Seeking Alpha PROWe look forward to contacting you shortly for a conversation.

Thank you for your interest in Seeking Alpha PRO

Our PRO subscription service was created for fund managers, and the cost of the product is
prohibitive for most individual investors.
PRO Alerts is our flagship product for individual investors who want to be faster
and smarter about their stocks. To learn more about it, click here.
If you are an investment professional with over $1M AUM and received this message
in error, click here and you will be contacted shortly.

Thank you for your interest in Seeking Alpha PROWe look forward to contacting you when we have an individual investor product ready!